What the interest rate cut means for real estate in Canada

Some real estate experts are predicting a rebound in market following the Bank of Canada interest rate cut — but likely not right away.

The Bank of Canada just announced its fourth consecutive interest rate cut since June. Its policy rate now stands at 3.75 per cent, down from a height of five per cent.

This is the first time the rate has been below four per cent in two years.

With the latest cut, real estate brokerage Royal LePage suggested activity levels in Canada’s housing markets could spike this spring as consumers continue to gain confidence.

“Activity in Canada’s housing market has been sluggish in many regions due to higher borrowing costs, but today’s more aggressive cut to lending rates could cause the tide to turn quickly,” said Phil Soper, president and CEO of Royal LePage.

More homebuyers are expected to come off of the sidelines, Soper said.

“In turn, rising demand will cause home prices to increase more rapidly, eliminating the advantages of lower borrowing costs,” he added. “We expect that an early spring market is on the cards – a pull-ahead trend we’ve seen in previous market turnarounds.”

People with variable rate mortgages or those with fast-approaching loan renewals will benefit from the rate drop immediately, Soper said.

Home prices have been essentially flat, Royal LePage noted in its third-quarter report.

The aggregate price of a home in Canada increased 1.6 per cent year over year to $815,500 in the third quarter of 2024. On a quarter-over-quarter basis, however, the national aggregate home price decreased 1.1 per cent.

Although experts had been predicting a rebound in the market this fall, many are now saying spring or summer 2025 is more likely.

“Despite three cuts to the Bank of Canada’s overnight lending rate, buyer demand nationally remains weak, particularly among two key groups: first-time homebuyers and small investors,” Soper said.

Many would-be buyers will likely wait for the Bank of Canada’s final rate announcement of the year in December before making a move because they are worried the market hasn’t yet bottomed out, Rates.ca mortgage and real estate expert Victor Tran said.

Real estate consultant Altus Group suggested that even with this latest, large rate cut, buyers will stay on the sidelines.

“As I’ve said in the past, the point of rate cuts is to stimulate the economy, but they typically do so with fairly long lags,” said Peter Norman, head of economic consulting at Altus Group.  “Investors want a relatively stable rate environment before they start transacting again, so I would expect activity to pick up sometime in mid-2025.”

With files from the Canadian Press